Locational Theories of Industry
A. Beginning of the Industrial Revolution
When & where?
– Great Britain mid-1700s
Why Great Britain?
– Flow of capital
– 2nd Agricultural Revolution
– Resources: coal, iron, & water
Ironbridge, England:
World’s first bridge made entirely of cast iron (late 1700s)
Textiles:
Liverpool and
Manchester
Iron Production:
Birmingham
Coal Mining:
Newcastle
B. Types of Industrial Production
Fordist Production: assembly-line industrial production for
mass consumption (post-WW I)
“Post-Fordist” Flexible Production: “post-Fordist” multinational producers can move production sites through
outsourcing (post-WW II)
-role of technology?
outsourcing: to relocate from
higher-cost locations to lower cost
market locations
*international markets are brought “closer together”
through outsourcing
check clothing labels… production sites?
C. WHO “outsources”?
multinational (or transnational) corporations:
businesses that conduct research, operate factories,
& sell products in more than one country
Types of MNC’s:
1. telecommunication
2. financial
3. manufacturing
McDonald’s sales in 2003 ($41 bill.) greater than the GDP of
Afghanistan ($21 bill.)…is this good or bad?
Wal-Mart
Retail stores: 7,262 (4,141 in U.S.)
*Wal-Mart serves more than 176 million customers weekly in
14 countries worldwide
Total sales in 2007?
$374.5 billion!
What are the economic benefits of Wal-Marts in Florida?
- spent $5.7 bill. in Florida in 2007
- over 200,000 jobs
- about $1 bill. in taxes
Costs?
D. Location Theories
Location Theories– predicting where business will or
should be located
1. Weber’s Model
2. Hotelling’s Model
3. Losch’s Model
Considerations:
- variable costs
- friction of distance
Location Models
Weber’s Model:
Assumption:
Hotelling’s Model:
“Least Cost Theory”:
Assumption:
manufacturing plants
“Locational
locate where costs are interdependence”:
the least
location of an industry
Costs: Transportation, understood in
Labor, Agglomeration
reference to other
industries
Losch’s Model:
Assumption:
“Zone of
Profitability”:
manufacturing
chooses locations to
maximize profits
Exercise: Spatial Competition
Wal-Mart ("Big") and True Value Hardware ("Small") selling
similar products are considering opening a new store in one
of four towns located on a given highway somewhere in
Yomama County in the state of Hawaii. The total population
of the four towns is 50,000 (as distributed on the graph
below). The towns are equally distant from each other (10
miles).
Distribution of Total Population (= Market):
Town A
Town B
Town C
Town D
| 20%|--10 miles--| 20%|--10 miles--| 40%|--10 miles--| 20%|
Where (in which of those 4 towns) would you expect the
two to locate their respective store given the following,
generally known information?
If Wal-Mart's store is located closer to a town, it will capture
80% of the market.
If True Value Hardware is nearer, then the Wal-Mart will
capture 40%.
If both companies' stores are equally distant, including being
located in the same town, then Wal-Mart will capture 60%.
Law of Retail Gravitation
Break Point (BP) is equal to the Distance (d) between two places, divided
by the following: Unity or Total (1) plus the Square Root of, the size of
Place One (p1) divided by the size of Place Two (p2).
Outlet Malls
Locational Interdependence
Why Outsource?
Weber’s Least-Cost Theory:
•
•
•
transport costs (“optimum point of production”)
labor costs
agglomeration costs
Agglomeration economies: clustering of firms
-- Dalton, Georgia: top 20 U.S. carpet makers
-- Silicon Valley in California
-- Bangalore, India (Bollywood)
-- maquiladoras on the Mexican border (over 3,000 plants
20 miles from U.S. border)
Production of Televisions
Three key elements in television production:
– Research and design
– Manufacturing components
– Assembly
Production of televisions has shifted across the
world over time.
E. Weaknesses of Weber’s theory??
-- “flexible” or “just-in-time” manufacturing
-- “footloose” firms
-- “offshoring”
-- “new” international division of labor
“Just-in-time” delivery:
rather than keeping a large inventory, companies
engage in short-term production & ship quickly
Offshoring:
outsourced work or company headquarters that is
located outside of the market country
International division of labor:
corporations draw from labor around the globe
Time-Space Compression:
improvements in transportation &
communications technologies
leading to more places being interconnected
*How has the economic structure of the U.S. changed?
“Deindustrialization” in the core (loss of manufacturing…gain?)
-- service jobs (tertiary)
--family members’ jobs?
“Rust Belt”
“Guest Worker” immigration flows
Some MNC’s with Maquiladoras in Mexico:
3 Day Blinds
20th Century Plastics
Acer Peripherals
Bali Company, Inc.
Bayer Corp.
BMW
Canon Business Machines
Casio Manufacturing
Chrysler
Daewoo
Eastman Kodak
Eberhard-Faber
Eli Lilly Corporation
Ericsson
Fisher Price
Ford
Foster Grant Corporation
General Electric Company
GM
Hasbro
Hewlett Packard
Hitachi Home Electronics
Honda
Honeywell, Inc.
Hughes Aircraft
Hyundai Precision America
IBM
JVC
Matsushita
Mattel
Maxell Corporation
Mercedes Benz
Mitsubishi Electronics Corp.
Motorola
Nissan
Philips
Pioneer Speakers
Samsonite Corporation
Samsung
Sanyo North America
Sony Electronics
Tiffany
Toshiba
VW
Xerox
Zenith
F. A World of Rich & Poor? Or Inter-dependency?
core-periphery model: a theory in which rich, industrialized countries
(the “1st world”) dominate poorer, unindustrialized countries (the “3rd
world”)
*3 Major core regions of the world?
*Internet Access:
- a “digital divide”?
The Other Side of Outsourcing